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McMorris as her conservator, entered into an agreement with NW,
through Jerry McMorris as president, to redeem the 13.409091
shares of NW stock in exchange for $29,500,000, payable over
120 months with interest at 10 percent.
The Federal estate tax return (the estate tax return) for
decedent's estate was filed on December 4, 1991. The estate tax
return reflected deductions for decedent's 1991 Federal and
Colorado income tax liabilities of $3,960,525 and $641,222,
respectively. Decedent's Federal income tax return for 1991 (the
1991 Federal income tax return) was filed timely on or before
April 15, 1992. The 1991 Federal income tax return reflected an
income tax liability of $3,681,703, which amount was paid with
the return. Decedent's Colorado income tax return for 1991 also
was filed timely on or before April 15, 1992, and reflected an
income tax liability of $639,826, which was paid with the return.
A large part of the income reported on decedent's 1991
income tax returns resulted from gains on the redemptions of NW
stock that were passed through to decedent's 1991 income tax
returns from the fiduciary income tax return for Mr. McMorris's
estate for the fiscal year ended March 31, 1991. The NW stock
had been included on Mr. McMorris' estate tax return at an
appraised value of $1,726,562.50 per share. Accordingly,
decedent's basis in the NW stock was determined using the value
of $1,726,562.50 per share, and substantial gain resulted. After
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